The signal for degradation of proteins in the endoplasmic reticulum (ER) is thought to be the exposure of internal domains which are buried when the protein has adopted its correct conformation and which are also exposed in assembly intermediates. This raises the question of why the intermediates are not degraded. We developed a system based on the peroxidase-catalyzed iodination of tyrosine residues which continuously monitors the exposure of internal domains of proinsulin. In CHO cells this system discriminated between assembly intermediates of wild type (wt) proinsulin and misfolded proinsulin, as shown by the exclusive iodination of a misfolded mutant which was finally degraded in the ER. Iodination in vitro showed that the assembly intermediates of wt proinsulin also exposed internal domains. This iodination was inhibited by the addition of the molecular chaperone Bip which was co-immunoprecipitated with proinsulin in CHO cells. The results obtained with the mutant proinsulin support the assumption that exposed internal domains represent the signal for degradation in the ER. Observations of wt proinsulin show that Bip masks internal domains of normal assembly intermediates during the entire assembly process, thereby suppressing their degradation. We propose that internal domains contain co-localized signals for Bip binding and for degradation.